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DECREE

On the financial regime applicable to credit institutions

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to December 12, 1997 Credit Institution Law No. 02/1997/QH10 and June 15, 2004 Law No. 20/2004/QH11 Amending and Supplementing a Number of Articles of the Credit Institution Law;

Pursuant to June 12, 1999 Enterprise Law No. 13/1999/QH10;

Pursuant to November 26, 2003 State Enterprise Law No. 14/2003/QH11;

At the proposal of the Finance Minister,

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1.- Regulation scope

This Decree provides the financial regime applicable to credit institutions set up, organized and operating under the provisions of the 1997 Credit Institution Law and June 15, 2004 Law No. 20/2004/QH11 Amending and Supplementing a Number of Articles of the Credit Institution Law.

Article 2.- Financial management principles

1. Credit institutions shall be financially autonomous, take responsibility for their business operations, and perform their obligations and commitments in accordance with the provisions of law.

2. Credit institutions shall be subject to financial publicity.

Article 3.- Chairmen of the Managing Boards, general directors (or directors) of credit institutions shall take responsibility before law and before state management agencies for the observance of financial, accounting and auditing regimes applicable to credit institutions.

Article 4.- The Finance Ministry shall perform the function of state financial management of credit institutions, guide and inspect the latter in implementing the financial regime applicable to them under the provisions of law.

Chapter II

MANAGEMENT AND USE OF CAPITAL AND ASSETS

Article 5.- Working capital of a credit institution includes:

1. The owner's capital:

a/ Charter capital;

b/ Differences arising from the revaluation of assets and exchange rate differences prescribed by law;

c/ Stock capital surplus;

d/ The reserve fund for supplementation of charter capital, the professional development investment fund and the financial provision;

e/ Retained profits.

2. Mobilized capital:

a/ Capital mobilized from money deposits of organizations and individuals;

b/ Capital borrowed from domestic and foreign credit institutions;

c/ Borrowings from the State Bank;

d/ Issuance of valuable papers.

3. Other capital provided for by law.

Article 6.- In the course of operation, credit institutions must ensure that their actual charter capital level shall not be lower than the legal capital level set by the Government for their respective type. In case of changes in their charter capital, credit institutions must publicize new charter capital.

Article 7.- Use of capital and assets

1. Credit institutions may use their working capital for business under the provisions of the Credit Institution Law, ensuring the principle of capital safety and development. Credit institutions may use not more than 50% of their own capital of level one (under guidance of the State Bank) for investment in construction and procurement of fixed assets and must observe all state regulations on investment and construction management.

2. Credit institutions shall be entitled to restructure their capital and assets for business development.

3. The transfer of capital and assets between branches or independent member companies of credit institutions shall comply with the Managing Boards' regulations.

Article 8.- Capital contribution and share purchase

1. Credit institutions may use their charter capital and reserve funds to contribute capital to, or purchase shares from, enterprises and/or other credit institutions under the provisions of law.

2. The Managing Boards of credit institutions shall decide or authorize their general directors (or directors) to decide on the contribution of capital to, or purchase of shares from, enterprises and/or other credit institutions under the provisions of law.

3. Credit institutions may contribute capital to joint ventures with the land use right value in accordance with the provisions of land law.

4. A credit institution must not purchase shares from, or contribute capital to, other enterprises, whose managerial or executive staffs or principal owners are wives or husbands, fathers, mothers, children or blood siblings of members of its Managing Board, Control Commission, directorate or chief accountant.

Article 9.- Assurance of capital safety

Credit institutions shall have to observe regulations on assurance of safety of their working capital as follows:

1. Managing and using their capital and assets in accordance with the provisions of law.

2. Maintaining safety ratios as prescribed by law.

3. Purchasing property insurance under the provisions of law.

4. Participating in deposit insurance or deposit preservation organizations to protect legitimate rights of depositors, contributing to maintaining stability of credit institutions.

5. Accounting into their business expenses deductions to set up the following provisions:

a/ The operation-risk provision. The deduction level and use of this provision to offset risks in banking operations shall be provided by the State Bank Governor after reaching agreement with the Finance Minister;

b/ The provision for decrease in prices of unsold goods;

c/ The provision for long-term investment losses (covering also securities price decrease);

d/ The bad debt provision;

e/ The severance allowance provision.

6. Other measures to preserve capital under the provisions of law.

Article 10.- Inventory and revaluation of assets

1. Inventory of assets:

Credit institutions shall inventory their assets after closing accounting books to make annual financial statements; upon execution of decisions on division, separation, merger, consolidation or ownership transformation; after the occurrence of natural disasters or enemy sabotages; or for any reason that causes changes in their assets; or under regulations of competent state agencies. For redundant or deficient assets, it is necessary to determine the causes and the responsibilities of involved persons as well as levels of damages according to regulations.

2. Revaluation of assets:

a/ Credits institutions shall revalue their assets in the following cases:

- Under decisions of competent state agencies;

- For ownership transformation or diversification of ownership forms;

- For use of assets for investment outside the credit institutions or recovery of assets in case of termination of operations of joint ventures.

b/ The revaluation of assets and settlement of differences from the increase or decrease in the value of assets after revaluation as defined at Point a, Clause 2 of this Article shall comply with the provisions of law on a case-by-case basis.

Article 11.- Depreciation of fixed assets

Credit institutions may make depreciation of fixed assets as provided by law for enterprises. They may use such depreciation for reinvestment in replacement or renewal of fixed assets and for other business requirements in accordance with the provisions of law.

Article 12.- Handling of asset losses

When suffering asset losses, credit institutions must determine the causes thereof and the responsibilities therefor and handle them as follows:

1. In case of subjective causes, the persons causing such losses must pay damages. The Managing Boards or the general directors (or directors) of credit institutions must decide on levels of damages in accordance with the provisions of law and take responsibility for their decisions.

2. If insurance has been purchased for such assets, losses shall be handled in accordance with insurance policies.

3. The provision already appropriated from business expenses shall be used to make up for losses under the provisions of law.

4. If after losses have been made up for with damages paid by individuals and/or organizations, with indemnities paid by insurance organizations and with the provision already made and accounted in its business expenses, a credit institution still suffers deficit, such deficit shall be made up for by its financial provision. Where the financial provision is not enough to make up for the deficit, the deficit shall be accounted into other expenses in the period.

Article 13.- Lease, mortgage and pledge of assets

Credit institutions shall be entitled to lease, mortgage or pledge their assets under the provisions of the Civil Code and other provisions of law, ensuring efficiency, safety and development of the capital.

Article 14.- Sale of assets

1. Credit institutions shall be entitled to sell assets to recover capital for use for more efficient business purposes.

2. The sale of assets of state-owned credit institutions shall comply with the provisions of law on sale of assets of state enterprises.

3. Any difference between the proceeds from the sale of assets and the remaining value of sold assets as well as asset-sale expenses shall be accounted into business results of credit institutions.

Article 15.- Liquidation of assets

1. Credit institutions shall be entitled to liquidate poor-quality, deteriorated and irreparably damaged assets; as well as technically- obsolete assets which need not to be used or have been used inefficiently and cannot be sold in status quo.

The competence to decide on liquidation of assets of state-owned credit institutions shall comply with the provisions of law on liquidation of assets of state enterprises.

2. When liquidating assets, credit institutions must set up liquidation councils. When liquidating assets required by law to be auctioned, credit institutions must organize auctions in accordance with the provisions of law.

3. The difference between the proceeds from liquidation of assets and the remaining value of liquidated assets as well as asset-liquidation expenses shall be accounted into business results of credit institutions.

Chapter III

REVENUES, EXPENDITURES AND BUSINESS RESULTS

Article 16.- Revenues

1. Revenues from business activities of credit institutions mean their money amounts gained in a period, covering:

a/ Revenues from business activities, including revenues from credit operations; deposit interests; revenues from service provision, from foreign exchange and gold dealing; interests from capital contribution, share purchase, debt sale or purchase; exchange rate differences, and revenues from other business activities;

b/ Other revenues, including proceeds from sale or liquidation of fixed assets, from capital amounts already settled with the risk provision; revenues from managerial funding for independent member companies; revenues from fines imposed on customers who breach contracts; and other revenues.

2. The Finance Ministry shall specify conditions and time for determination of revenues.

Article 17.- Expenditures

Expenditures of credit institutions mean reasonable expenses payable in the period, including:

1. Expenses for business activities:

a/ Expenses for payment of deposit interests or loan interests; expenses for foreign-exchange and gold business activities; expenses for banking service activities, purchase and sale of shares or bonds, purchase and sale of debts, capital contribution or share purchase; expenses on exchange rate differences; expenses for other business activities;

b/ Expenses for depreciation of fixed assets. The depreciation level shall comply with general regulations for enterprises;

c/ Expenses for rent or lease of assets;

d/ Expenses for payment of salaries and remunerations, and salary-like expenses as prescribed;

e/ Expenses for social insurance, health insurance and trade union fee;

f/ Expenses for purchase of services from outside, hired repair of fixed assets, transportation, electricity, water, telephone, materials, printing paper, stationery, labor tools, fire prevention and fighting, consultancy, audit, property insurance, human accident insurance, working trips, traveling allowances for leaves under regulations, commissions, agency brokerage, consignment and other services;

g/ Other expenses:

- Expenses for labor protection.

- Expenses for office uniforms.

- Expenses for severance allowances for laborers under the prescribed regime.

- Expenses made under the prescribed regime for female laborers.

- Expenses for shift meals of their officials and employees.

- Expenses for payment of dues to business associations, of which they are participants.

- Expenses for activities of party and mass organizations at credit institutions (those beyond funding of party and mass organizations shall be made from prescribed sources).

- Expenses for setting up of provisions and for participation in deposit preservation organizations or for payment of deposit insurance premiums according to the provisions of Article 9 of this Decree.

- Expenses for scientific research or research into the renewal of technologies; for innovations; for training of laborers to raise their professional and managerial capabilities; for educational supports (if any); on healthcare for their laborers under the prescribed regime.

- Expenses for rewards for innovations to raise labor productivity or for saving of costs in compatibility with actual efficiency.

- Expenses for their security work.

- Expenses for environmental protection.

- Expenses for guest reception, ceremonies, propagation activities, advertising, marketing, trade promotion, transactions, public relations or meetings.

- Expenses for payment of excise tax, land use tax or land rents, house and land tax, other taxes, charges and fees.

2. Other expenses of credit institutions, including:

a/ Expenses for sale or liquidation of assets (including the remaining value of assets and sale or liquidation expenses);

b/ Expenses for retrieval of debts which have been written off and expenses for retrieval of overdue bad debts.

c/ Expenses for fines for breaches of economic contracts;

d/ Expenses for handling of remaining asset losses which have been offset with sources defined in Clause 4, Article 12 of this Decree;

e/ Expenses for items which have been accounted into revenues but the revenues therefrom have not yet been received;

f/ Other reasonable and regular expenses.

Article 18.- Credit institutions must not account into their business expenditures the following:

1. Fines for law violations committed by individuals acting not in the names of credit institutions.

2. Expenses not relating to business activities of credit institutions, expenses without valid vouchers.

3. Expenses covered by other sources.

4. Other unreasonable expenses.

Article 19.-

1. All economic operations must be reflected in accounting books and settlement reports in Vietnam dong.

2. Where economic operations arise in foreign currencies, such currencies must be converted into Vietnam dong under regulations of the Finance Ministry.

Article 20.- Credit institutions shall account their revenues and expenses strictly according to the prescribed regime, take responsibility before law for the accuracy of such revenues and expenses and comply with the accounting invoice and voucher regime.

Chapter IV

PROFITS AND SETTING UP OF FUNDS

Article 21.- Real profits

Real profits in a year mean business results of credit institutions, including profits from professional operations and other operations. Profits of a credit institution mean the difference between its total receivable revenues and total payable reasonable expenses.

Article 22.- Distribution of profits of credit institutions with 100% state capital:

Profits of a credit institution, after offsetting its losses in the previous year under the provisions of the Enterprise Income Tax Law and paying enterprise income tax under the provisions of law, shall be distributed as follows:

1. To be deducted for setting up of the reserve fund for supplementation of its charter capital by 5%, provided that this fund must not exceed its charter capital level.

2. To be shared among associated capital-contributing members under terms of contracts (if any).

3. To offset losses of previous years, the time limit for accounting of which into pre-enterprise income tax profits has expired.

4. To be distributed, after subtracting amounts defined in Clauses 1, 2 and 3 of this Article, as follows:

a/ 10% for the financial provision; the maximum level of this fund must not exceed 25% of charter capital of the credit institution.

b/ 50% for the professional operation development investment fund;

c/ The remaining profits to be distributed as follows:

- To set up the bonus fund for the credit institution's managerial and executive board according to general regulations for state enterprises.

- To set up the reward fund and the welfare fund. The maximum appropriation level shall not exceed 3-month actually paid salaries.

- The remaining profits, after the setting up of the reward and welfare funds, shall be added to the professional operation development investment fund.

Article 23.- Distribution of profits of other credit institutions

Profits of a credit institution, after offsetting its losses of the previous year under the provisions of the Enterprise Income Tax Law and paying enterprise income tax under the provisions of law, shall be distributed as follows:

1. To be deducted for setting up of the reserve for supplementation of charter capital, share of interests to associated members under terms of contracts (if any), and offsetting of losses of previous years the time limit for accounting of which into pre-enterprise income tax profits has expired.

2. To be deducted 10% for the financial provision; the maximum balance of this fund shall not exceed 25% of charter capital of the credit institution.

3. The distribution of remaining profits shall be decided by the credit institution itself.

Article 24.- Principles for use of funds

1. The reserve for supplementation of charter capital shall be used to supplement charter capital.

2. The professional operation development investment fund shall be used to invest in business expansion and renewal of technologies as well as working equipment and conditions of the concerned credit institution.

Based on the demand for investment and the capacity of the fund, the credit institution's Managing Board shall decide on investment forms and manners on the principles of efficiency, safety and development of capital.

3. The financial provision shall be used to offset remaining asset losses and damage in the course of business of the credit institution after they have been offset with damages paid by organizations and/or individuals that have caused them, with indemnities paid by insurance organizations and with the provision set up and accounted into its expenditures.

4. The bonus fund for the credit institution's executive board shall be used to give bonuses to the Managing Board and the directorate of the credit institution. The bonus level shall be decided by the owner's representative, based on the credit institution's business results and the proposal of its Managing Board chairman.

5. The reward fund shall be used to:

a/ Reward officials and employees of the credit institution at the year-end or periodically. The reward level shall be decided by the credit institution's Managing Board at the proposal of its general director (or director) and trade union on the basis of labor productivity and achievements of its officials and employees;

b/ Give extraordinary rewards to individuals and/or collectives in the credit institution that have technical renovations or professional processes bringing about business results. The reward levels shall be decided by the Managing Board.

c/ Reward individuals and units outside the credit institution that have economic relations with it, have well fulfilled terms of contracts or efficiently contributed to its business activities. The reward levels shall be decided by the Managing Board.

6. The welfare fund shall be used to:

a/ Invest in construction or repair of its welfare facilities, or supplement capital for construction of such facilities; contribute investment capital for construction of welfare facilities of the entire branch or facilities to be shared with other units under agreements in contracts;

b/ Spend on sport, cultural and public welfare activities of the collective of its officials and employees;

c/ Spend on regular or extraordinary allowances for its officials and employees meeting with difficulties, including those who have retired or lost their working capacity;

d/ Spend on other welfare activities;

The Managing Board, the general director (or director) of the credit institution shall coordinate with the trade union's executive board in managing and using this fund.

Chapter V

ACCOUNTING, STATISTICAL AND AUDITING REGIMES

Article 25.- Accounting and statistics

1. Credit institutions shall implement accounting and statistical regimes provided for by law, record all initial vouchers, update accounting books, and fully, promptly, truthfully as well as objectively reflect their financial operations.

2. A fiscal year of credit institutions shall commence on January 1 and end on December 31 of the calendar year.

Article 26.- Financial statements

At the end of an accounting period (quarter or year), credit institutions must make, present and send financial statements as well as statistical reports according to the provisions of law. The Managing Boards and general directors (or directors) of credit institutions shall take responsibility for accuracy and truthfulness of such statements and reports.

Article 27.- Auditing

1. Credit institutions must organize internal audits to audit their financial statements.

2. The audit of financial statements of credit institutions shall comply with current provisions of law on accounting. The results of audit of financial statements of credit institutions must be sent to state-owned financial institutions and the State Bank of Vietnam.

Article 28.- Financial publicity

Within 120 days after the end of a fiscal year, credit institutions must publicize their financial statements in accordance with the provisions of law.

Article 29.- Financial regulations

Based on legal documents guiding the financial regimes, credit institutions shall elaborate their own financial regulations and submit them to the Managing Board for approval to have basis for implementation. Particularly for state-owned credit institutions, their financial regulations must be approved by the Finance Ministry.

Chapter VI

RESPONSIBILITIES OF THE MANAGING BOARD, THE GENERAL DIRECTOR OR DIRECTOR OF A CREDIT INSTITUTION

Article 30.- Responsibilities of the Managing Board of a credit institution

1. To manage the credit institution and, within the ambit of its powers, to organize, inspect and supervise financial operations of the credit institution.

2. To receive capital, land, natural resources and other resources assigned by the State and shareholders to the credit institution for use.

3. To decide or authorize the general director (or director) of the credit constitution to decide on investment projects, capital contribution or share purchase together with domestic and foreign economic organizations under the provisions of law.

4. To approve capital mobilization, use, preservation and development schemes of the credit institution as well as schemes on the use of its after-tax profits, submitted by the general director (or director), and take responsibility for its decisions.

5. To approve annual financial statements of the credit institution and publicize financial statements under regulations; approve annual financial statements of independent member companies of the credit institution; approve long-term and annual financial plans submitted by the credit institution's general director (or director); appoint persons to represent the credit institution's capital portions invested in other enterprises.

6. To inspect and supervise the general director (or director) of the credit institution as well as directors of its independent member companies in the use, preservation and development of capital, in the organization of business activities under plans or schemes it has already approved, and the fulfillment of obligations toward the state budget.

7. To take responsibility for examining the accuracy and truthfulness of the credit institution's reports on business results, distribution and use of its after-tax profits in strict compliance with regulations.

8. To perform other responsibilities in accordance with the provisions of law.

Article 31.- Responsibilities of the general director (or director) of a credit institution

1. To represent the credit institution's legal person, administer its operations and take responsibility before the Managing Board and the State Bank Governor, before law and financial institutions for administration of operations of the credit institution.

2. To join the Managing Board chairman in signing for reception of capital, land, natural resources and other resources assigned by the State and shareholders.

3. To take responsibility for administration of the use of capital in business under the capital use, preservation and development scheme already approved by the Managing Board; to carry out the profit-distribution scheme after making state budget remittances.

4. To take responsibility for mobilization and use of capital sources in business activities; to take material responsibility for damage caused by him/her to the credit institution.

5. To formulate expense norms suitable with business conditions of the credit institution.

6. To make and submit to the Managing Board for approval financial statements. To take responsibility for the accuracy and truthfulness of financial statements, statistical reports, final accounting data and other financial information.

7. To work out annual financial plans compatible with the business plan, to be submitted to the Managing Board for approval, then be sent to the state-owned financial institutions under regulations of the Finance Ministry.

8. To decide on investment projects, capital contribution and share purchase with domestic and foreign economic organizations under authorization of the credit institution's Managing Board.

9. To perform other responsibilities under the provisions of law.

Chapter VII

FINANCIAL PLANS, EXAMINATION AND INSPECTION

Article 32.- Financial plans

1. Credit institutions shall elaborate annual financial plans under guidance of the Finance Ministry and send them to the state-owned financial institutions and the State Bank of Vietnam. Financial plans of a credit institution shall cover:

a/ The plan on its capital sources and the use of capital;

b/ The plan on its revenues, expenses, business results and state budget remittance targets;

c/ The labor and salary plan.

2. The above-said plans of credit institutions must be approved by their Managing Boards and sent to State-owned financial institutions as well as the State Bank of Vietnam before November 15 of the year before the plan year.

Article 33.- The Finance Ministry shall examine and inspect credit institutions in their observance of the financial regime.

Chapter VIII

IMPLEMENTATION PROVISIONS

Article 34.- This Decree takes effect 15 days after its publication in "CONG BAO." It replaces the Government's Decree No. 166/1999/ND-CP of November 19, 1999.

Article 35.- The Finance Ministry shall assume the prime responsibility for, and coordinate with the State Bank of Vietnam in, guiding the implementation of this Decree.

Ministers, heads of ministerial-level agencies, heads of Government-attached agencies and presidents of provincial/municipal People's Committees shall have to implement this Decree.